At least one insurer has been able to update their rates after last week’s announcement about changes to the way compensation payouts are calculated.
Many insurers were caught off guard by the Ministry of Justice (MOJ) announcement because the reduction in the compensation discount rate is much larger than expected. The change has angered many in the industry as it means that motorists will have to pay significantly more for their car insurance.
However Gary Humphreys, Group Underwriting Director of Markerstudy, said that thanks to his company’s cutting edge technology, it implemented the changes as soon as they were announced.
Markerstudy uses RDT’s centralised rating platform, Equator, which enables rates and products to be updated instantly. Mr Humphreys said: “We’ve already made the changes. But the less technologically advanced insurers will take longer”.
Average car insurance premiums could rise by up to £75 a year as a result of the new formula for calculating compensation payouts. Insurers had expected a reduction in the discount, but not by the 3.25 per cent that’s been announced. Huw Edwards, director-general of the Association of British Insurers, called the decision “crazy”. He said: “claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses”.
The MOJ said it was legally obliged to change the discount rate, and that it will launch a consultation on how the system can be made fairer. Markerstudy was one of the insurers who sent representatives to meet the Chancellor last week to discuss the discount. Mr Humphreys said: “From October 2015 to June 2017 the government has doubled IPT from 6 per cent to 12 per cent. If they genuinely want to reduce the cost of motor insurance then surely they should help offset the inevitable increases caused by the Lord Chancellor’s revision of the discount rate by reducing IPT back to 6 per cent.”
The discount rate, also called the Ogden rate, is applied if an insurance company makes a lump sum payment to a claimant who is suffering from long-term effects of their injuries. The reduction from 2.5 per cent to -0.75 per cent was a surprise for insurers, most of whom had been allowing for a reduction to 1.5 or 1 per cent.